Mortgages are no longer the preserve of banks and building societies.
For around one year now it has been difficult for may to obtain buy-to-let (BTL) mortgages. Private investors have seen their deposit requirements increase from a typical 15% to an average of 30% today (lowest deposit offers are 25% but fees and terms are less favourable). So for the private property buyer it means you need a lot of cash to take on a property investment. The banks are really making it tough for everyone.
But the market is starting to change. A private investment fund is now offering BTL mortgages at 85% LTV, a deposit of just 15% needed. The only catch is their fees are high at around 6% of the loan compared to 3% to 3.5% fees charged by the banks. But then the private fund is currently offering a 5.2% five year fixed rate, which seems very attractive compared with the 3% to 4% (above) base rate trackers offered by the banks.
So if private funds can lend at much higher LTVs (smaller deposits) why can’t the high street banks? There are several reasons for this. One is, according to the Council of Mortgage Lenders (CML), the banks can not raise funds at sufficiently attractive rates to pass on to property buyers. Another possibility is the bank risk profile, as many still have a lot of high risk debt including many mortgages with negative equity they need to improve their overall loan books. In effect with the banks taking on very secure mortgages (e.g. 75% LTV) they can offset the more risky loans, so overall their lending risk profile is reduced. The bank’s risk profile is a key factor for their ability to raise funds in the money markets, no one wants to lend to a bank that may subsequently go out of business.
So, overall we have good news that private funds are entering the mortgage maket. Maybe in the future the banks will see more competition, which hopefully will be better for those wanting to take out a mortgage.
